(Yicai Global) Oct. 19 -- Shenzhen will be allowed to issue Chinese yuan-denominated local government bonds overseas as part of the Chinese government’s plan to grant the special economic zone more powers in piloting new market reforms.

A stronger demand for the yuan as a foreign exchange reserve currency justifies the overseas issuance of yuan-denominated bonds, The Paper reported today.

The issuing of such bonds on the international market will help promote the deep integration of yuan bonds into global financial markets and push forward the internationalization of the Chinese currency, said Wang Yuanwei from the China Development Bank Research Institute. It will also help improve the local debt market system and promote its liquidity, he added.

As major global economies adopt unprecedented quantitative monetary easing policies to help counter the negative impact of the Covid-19 pandemic on the economy, interest rates and the return on assets in these countries continue to slide and are even turning negative.

As a result, international investors have been increasing their holdings of Chinese bonds. Foreign capital holdings of yuan bonds were up 44.66 percent in September from the same time last year to CNY2.6 trillion (USD388.1 billion), and have risen for 22 consecutive months, according to the latest data from the China Central Depository and Clearing.

Shenzhen’s financial situation is very sound compared to other local governments in China, said Zhong Huiyong, an associate professor at the Shanghai University of International Business and Economies' School of Finance. Should Shenzhen be successful, other cities may also issue offshore local government bonds at a later stage which will help broaden their financing channels and relieve their financial pressure, he added.

Shenzhen has also been given the go-ahead to sell stock index-futures products, improve mechanisms for the financial support of innovation in science and technology, conduct tests on the reform of the bankruptcy system and facilitate the permanent residence of top foreign talent, according to the new rules released by the National Development and Reform Commission yesterday.

Editor: Kim Taylor